The Division 296 tax is now law. After years of consultation, redrafting, and debate, the Treasury Laws Amendment Bill 2026 passed the Senate on 10 March 2026. The div 296 tax takes effect from 1 July 2026 — which means the window for meaningful action is closing fast.

For financial advisers and SMSF administrators, the question is no longer whether this tax is coming. The question is: what do you need to do right now, for every affected client, before 30 June 2026?

This guide gives you a clear, practical breakdown: the key mechanics of the Division 296 tax, the critical pre-30 June 2026 actions, and how robust SMSF administration supports your compliance obligations from day one.

What is the Division 296 Tax?

The division 296 tax, also referred to as the Better Targeted Superannuation Concessions (BTSC) tax, is an additional personal tax that applies to individuals whose total superannuation balance (TSB) exceeds $3 million. It sits on top of all existing fund taxes and is calculated at the individual level, not the fund level.

The revised legislation made a landmark shift from the original proposal: it taxes realised earnings only, not unrealised gains. This was the most significant point of contention in earlier drafts.

Division 296 Tax Rates at a Glance

TSB Threshold	Additional Tax Rate	Total Effective Tax Rate (Nominal)
$3m – $10m	+15% on proportion above $3m	~30% on taxable earnings above $3m
Above $10m	+15% above $3m, +10% above $10m	~40% on taxable earnings above $10m

The division 296 tax effective rate calculation is based on: (i) the fund’s total realised earnings for the year, split proportionally between members, and (ii) the proportion of each member’s TSB that sits above the relevant threshold. This is a personal tax liability – it sits with the individual, not the SMSF trustee.

What Changed in the Latest Division 296 Tax Update

The December 2025 exposure draft delivered the most substantive Division 296 tax update since the tax was first proposed. Here is what changed and why it matters for your clients:

1. No Tax on Unrealised Gains

The original proposal would have taxed the annual increase in a member’s TSB – meaning paper gains on unsold assets could have triggered a tax bill. The revised legislation shifts to a realised earnings model, aligned to existing income tax concepts. Capital gains are included in the Division 296 fund earnings only in the year they appear on the fund’s tax return.

2. New $10 Million Tier Introduced

A second threshold at $10 million has been added with an additional 10% tax rate, bringing the total nominal effective rate on earnings above $10 million to approximately 40%. Both the $3 million and $10 million thresholds are now indexed to inflation — a key concession from the original proposal.

3. CGT Cost Base Reset at 30 June 2026

This is one of the most important planning elements for SMSFs. Funds can opt in to reset the cost base of all CGT assets held at 30 June 2026 to market value – for Division 296 tax purposes only. This means any capital gains accrued before the tax starts will effectively be excluded from future Division 296 calculations.

4. TSB Measurement Rule Change

In the transitional 2026/27 year, the TSB is measured at 30 June 2027 only. From 2027/28 onwards, the TSB is assessed as the greater of the start or end-of-year balance – a clear integrity measure targeting members hoping to withdraw funds late in the year to fall below the threshold.

5. Earnings Allocation Between SMSF Members

Regulations (still pending as of March 2026) will determine exactly how a fund’s Division 296 earnings are split between members. Early guidance indicates a proportionate approach, potentially requiring an actuarial certificate for some funds – adding administrative complexity and cost.

Who is Affected? Identifying At-Risk Clients

Before executing any strategy, advisers need a clear picture of which clients fall within the scope of the SMSF Division 296 tax. The scope is broader than many initially assume:

• Members with a TSB above $3 million at 30 June 2027 (the first measurement date)
• Members approaching $3 million who may cross the threshold through contributions or strong investment returns
• Couples where one or both members hold SMSF balances close to or above the threshold
• Business owners who hold commercial property or other illiquid assets inside their SMSF — CGT events on these assets will trigger Division 296 earnings in the realisation year
• Members with significant unrealised capital gains built up over many years — particularly relevant to the CGT cost base reset decision
• Members with legacy pensions — these carry specific and complex Div 296 interactions that are flagged as an unintended consequence pending regulatory clarification

Identifying at-risk clients is just the first step — the next is ensuring your SMSF tax return preparation and lodgement process is built to handle the added complexity Division 296 brings.

Division 296 Checklist: What Financial Advisers Must Do Before 1 July 2026

The following checklist covers the actions that advisers and SMSF administrators should be completing before 30 June 2026. Some are time-sensitive and cannot be deferred.

Step 1: Identify All Affected Clients

• Screen your entire client book for members with TSB above — or approaching — $3 million
• Model projected balances at 30 June 2027, accounting for contributions, investment returns, and withdrawals
• Flag clients with illiquid assets (property, private equity, collectables) where valuation accuracy is critical

Step 2: Obtain Robust Asset Valuations Before 30 June 2026

This is arguably the most urgent action item. For funds considering the CGT cost base reset, the 30 June 2026 market valuations of all assets will become the locked-in Division 296 cost base for future years. Inaccurate or unsupported valuations will create ongoing ATO risk.

• Engage qualified valuers now for all unlisted investments, commercial property, and business real property
• Document the methodology and evidence supporting each valuation
• Ensure the fund’s records are ATO-audit-ready at 30 June 2026

Step 3: Evaluate the CGT Cost Base Reset Opt-In Decision

This decision is not one-size-fits-all. Advisers need to model the outcomes individually for each fund:

• Identify all CGT assets and their current unrealised gains and losses
• Model the net benefit of opting in, considering both assets with large unrealised gains and those with unrealised losses (resetting both)
• Remember: the opt-in applies to ALL assets in the fund — a fund cannot cherry-pick
• Note: the approved form is not due until the 2026/27 annual return lodgement date — but the underlying valuations must be ready at 30 June 2026

Step 4: Review Withdrawal and Restructuring Strategies

For members who want to reduce their TSB below $3 million, the transitional year (2026/27) uses only the 30 June 2027 balance. This means withdrawals before 30 June 2027 can still be effective — but only in the first year. From 2027/28, the start-of-year balance is also assessed.

• Model the after-tax cost of withdrawing funds from super versus remaining above threshold and paying Div 296 tax
• Consider the structural alternatives — personal investment accounts, family trusts, company structures — and compare net tax outcomes
• Assess contribution strategies: members close to $3 million may wish to limit future contributions

Step 5: Address Legacy Pension Positions

This is flagged as a specific unintended consequence of the legislation. Legacy pension commutations undertaken in the 2025/26 financial year may produce poor Division 296 tax outcomes due to interactions with the earnings calculation formula. Advisers should review any clients with legacy pensions urgently — before 30 June 2026 — as there is no regulatory fix confirmed yet.

Step 6: Prepare Client Communications

Many SMSF members are not yet aware of how the division 296 tax will affect them personally. Advisers should:

• Prepare client-ready summaries explaining the $3 million super tax in plain language
• Quantify the expected annual tax liability using a div 296 calculator model for each client
• Communicate the CGT cost base reset opportunity and the need to decide before — or at — 30 June 2026
• Set realistic expectations: for most clients, paying some Div 296 tax and remaining in super will still be more tax-effective than alternatives

Step 7: Ensure Administration and Lodgement Readiness

The Division 296 tax creates significant new administration obligations. SMSF administrators need to be prepared for:

• Tracking a separate notional cost base for each CGT asset (for funds that opt in) — purely for Division 296 purposes
• Splitting fund earnings between members in line with the regulations (when released)
• Potential actuarial certificate requirements for some funds
• Lodging the approved opt-in form with the 2026/27 annual return — on time
• Managing the annual return lodgement timeline carefully, as late lodgement forfeits the CGT relief permanently

Summary: Key Dates and Actions

Key Date / Milestone	Action Required
Now	Screen client book; identify all members at or approaching $3m TSB
Before 30 June 2026	Engage valuers for all unlisted/illiquid assets held in affected SMSFs
Before 30 June 2026	Model CGT cost base reset decision for each fund; analyse all unrealised gains and losses
Before 30 June 2026	Review legacy pension positions and commutation strategies urgently
Before 30 June 2026	Communicate Div 296 implications and options to all affected clients
Before 30 June 2027	Execute any super withdrawal or restructuring strategies (transitional year benefit)
2026/27 Annual Return Due Date	Lodge the CGT cost base reset opt-in approved form (if opting in) — do not miss this deadline
Post-July 2027	First Division 296 tax assessments issued; ensure member earnings allocation is compliant

Need Division 296-Ready SMSF Administration Support?

WealthRecords provides comprehensive SMSF administration, compliance, and documentation services for financial advisers and accounting firms across Australia. Our team is fully prepared for the new Division 296 tax obligations — so your clients’ funds are in expert hands.

Contact us to discuss your Division 296 administration requirements.